TWE declares interim results ‘on-track’

Treasury Wine Estate’s chief executive, Michael Clarke, has said that fiscal 2015 has “begun well” for the long-troubled Australian wine company.

TWE chief executive Michael Clarke

Presenting the results of the half year results for fiscal 2015, Clarke said: “Fiscal 2015 has begun well for TWE. Our first half result was in line with our plans and own expectations and we have demonstrated to both ourselves and our shareholders that we are fixing the quality of our base earnings and re-setting the business in order to deliver improved, consistent and sustainable earnings growth over the long term.”

In the six months to 31 December 2014, net sales revenue was up 6.2% to AU$882.7 million with “solid growth” reported in the Australian-New Zealand (ANZ), Americas and Asian markets.

Earnings before interest and taxes (EBITS) of AU$85.2m was reportedly 77.5% higher, which TWE attributed to the, “successful execution of key, strategic priorities during the period, despite the distraction caused by the two Private Equity proposals during the first quarter.”

Since taking over as TWE’s chief executive has implemented a number of initiatives to bring the company back to health after several difficult years.

These have included changing the release date of Penfolds from March and May to October, increasing investment in other brands, massive restructuring, adopting a new global marketing model and stripping excess costs – which has led to a cull of 5% of its workforce.

The “commitment” to reduce overheads by AU$35m during the fiscal year is “on-track” said the company and the savings are said to be supporting the 50% “step-up in consumer marketing” and addressing the quality of the base business.

Clarke continued: “While we are at the start of our transition from being an order-taking, agricultural company to a brand-led marketing organisation, the progress we have made to date and the results achieved by the team demonstrate that TWE is starting to address fixing the core of the business and is being set up for sustainable, future success”.

There are still challenges, notably in the Australian off-trade, where 75% of all wine is purchased through a “limited number” of retailers, coupled with the growth in private and exclusive labels in those retailers in Australia and another key market – the UK.

As Clarke added: “The growth of Private and Exclusive Labels in concentrated retail markets, notably Australia and the UK, places pressure on branded wines, with Private and Exclusive Label growth in Australia currently outpacing branded wine in both percentage and absolute dollar terms.

“The operating environment in Australia, where approximately 75 percent of off-premise wine purchased is through a limited number of retailers, reinforces the need for TWE to reshape, at a global level, its go-to-market strategy and portfolio and to consider how best we allocate precious resources in the future”.

The company stressed the need to counter these category and portfolio challenges by reinforcing its separate focus on luxury and “masstige” segements.

Looking ahead for this year, Clarke said: “TWE is now in a strong position to capitalise on the outstanding wines available for sale from the 2010, 2012, 2013 and 2014 vintages. However I, together with my management team, remain committed to taking a long-term view and will continue to pursue profitable growth opportunities and make the necessary investments in brands and key growth markets in order to build our sales and marketing reach.

“While our Luxury and Masstige portfolios are showing strong momentum, our results highlight continued challenges in the Commercial category across all regions. The challenges are intensifying with the increasing proliferation of Private and Exclusive Labels. We are currently working aggressively to accelerate the separate focus on the Luxury & Masstige versus the Commercial portfolios, globally.

“Consistent with our strategy to globalise TWE’s sales and marketing footprint, TWE is actively expanding its route-to-market in key growth regions, notably in North Asia. Our more focused route-to-market in China, which we are currently embedding, is a critical step on this journey and is expected to have a significant, and imminent impact on the already strong demand for our scarce Penfolds wines in that region.

“I am particularly looking forward to being able to share more detail on two, exciting innovations we are working on within the Penfolds brand. We are combining a super premium, highly collectable proposition straight from TWE’s cellars, at the same time delivering on our promise to create an accessible Luxury wine for new entrants into the Penfolds family.

“I am confident that the steps taken to start fixing the quality of our base business and momentum achieved in the first half of fiscal 2015 will continue in the second half and that TWE will be increasingly well positioned to capitalise on growth opportunities in both new and existing markets and channels.”